Al-Bahloul v. Tajikistan (SCC Case No. V 064/2008)
Summary by Natalia Charalampidou, citation details below.
Two decisions were rendered in this proceeding: the partial award on jurisdiction and liability of September 2, 2009 and the final award of June 8, 2010.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standards of fair and equal treatment, full protection and security, non-discrimination, most-favorable treatment, the umbrella clause (Art. 10(1) and (7) ECT) and measures having effect equivalent to nationalization or expropriation (Art. 13 ECT) (¶ 99 of the partial award ). Claimant also relied on the principles of attribution codified in the ILC Articles (¶ 100 of the partial award). The dispute was submitted to a SCC arbitral tribunal according to Art. 26(4)(c) of the ECT.
Any third parties or parallel proceedings:
Claimant in these proceedings was Mohammad Ammar Al-Bahloul, a national of Austria. Respondent was the Republic of Tajikistan ("Tajikistan") (¶¶ 1, 2 of the partial award). Respondent did not appear before the tribunal, although duly served with all notices, pleadings, orders and other communications (¶¶ 2, 28, 32, 34, 35, 47, 50, 51, 53, 56 of the partial award).
Core claim of these proceedings was the non-issuance of licenses under four agreements made in December 2000 between Mr Al-Bahloul and Tajikistan's state committee for oil & gas, along with the late issuance or non-issuance of licenses to two joint venture companies, which were incorporated for the purpose of increasing oil and gas extraction from the currently operating bores. Said licenses, which were promised by government officials, were necessary under domestic law for the performance of oil and gas activities. The described actions and inactions allegedly frustrated the projects in which claimant had invested and deprived him of his investment and of his reasonable profit expectation therefrom (¶¶ 17, 18 of the partial award). In addition, a domestic court ordered the reduction of the capital of one of the joint ventures (Petroleum SUGD) to the level of the parties' actual contributions. Thus, the participation of the claimant's entity was decreased. Claimant purported lack of due process in these court proceedings (¶¶ 21, 76, 77, 82 of the partial award). The other joint venture (Baldjuvon) was liquidated due to non-payment of the balance by the share of claimant's entity of the authorized capital. Hence, claimant alleged that his investment was lost (¶¶ 22, 86-88 of the partial award).
The tribunal decided to bifurcate the proceedings. It limited the first phase to the issues of jurisdiction and liability and reserved quantum of damages and/ or other remedies for a possible second phase (¶¶ 102, 106 of the partial award).
A. Partial award on jurisdiction and liability dated September 2, 2009
Before deciding on its jurisdiction, the tribunal made two notes. On the jurisprudence submitted by claimant, it stated that investment treaties are similar, albeit not identical, and that general statements of principle from prior awards cannot be taken in vacuum. With reference to the adduced evidence, the tribunal remarked that in this particular proceeding the factual evidence was submitted solely by claimant, as respondent had not participated, and it was limited, circumstantial, unsubstantiated or insufficiently substantiated (¶¶ 111-114). Thus, the tribunal had a very fragmentary picture of the dispute (¶ 117).
Then the tribunal accepted that an arbitration agreement was concluded since respondent was a contracting state to the ECT, and claimant had given his consent through his letter of May 16, 2018 (¶¶ 123-127). Claimant was considered to be an investor as a national of Austria, a state other than the respondent, under Art. 1(7) of the ECT (¶¶ 129-131), whereas an investment in the form of a contractual right to the issuance of the necessary licenses under Art. 1(6)(c) of the ECT was made (¶¶ 136, 138, 140). The fact that claimant indirectly owned and controlled the investment through an intermediary company in a non-ECT state did not affect the application of the ECT (¶¶ 142-145). With reference to the alleged breach of respondent's obligations under Part III of the ECT for establishing jurisdiction, the tribunal endorsed the Oil-Platforms Test. According to this, the facts, as alleged by claimant, if assumed to be true, must be able to constitute breaches of the respective investment treaty (¶ 148). The tribunal accepted that this test was satisfied in the present case (¶ 149). Still, the cooling-off period of three months (Art. 26(2) of the ECT) was not strictly satisfied. Albeit, in view of respondent's unwillingness to find an amicable settlement, the tribunal considered that insisting on compliance therewith would be an unnecessary formality. Thus, such a failure did not affect jurisdiction or the admissibility of the claims brought by claimant. Thereafter, the tribunal addressed the issue of forum selection, as respondent had raised the objection that the dispute resolution provisions in the joint-venture should prevail. The tribunal rejected this objection. It clarified that national courts constitute an alternative to arbitration under Art. 26 of the ECT (¶¶ 150, 155-158), while noting that treaty claims should not be confused with contractual claims. It underscored that the claim in the present proceedings was not a contractual claim, but a claim brought by an investor against the host state for breach of obligations under the ECT. Finally, after considering the dispute resolution provisions of the agreements and national law on foreign investment, the tribunal concluded that a tribunal's jurisdiction and the choice of applicable law in a dispute arising under the ECT are to be determined in accordance with the terms of the ECT. Thus, the tribunal established that it had jurisdiction to hear the claimant's claims in the present proceedings (¶¶ 159-163).
Turning to issues of liability, and in particular to the standard of fair and equitable treatment, the tribunal adopted the approach of Petrobart and affirmed that all provisions of Art. 10(1) of the ECT were interlinked (¶ 178). It then proceeded with addressing the four grounds put forward by claimant for his allegation of breach of said standard. It interpreted inconsistency and lack of transparency according to Metalclad, Tecmed and CMS (¶¶ 183-185). The issue of licenses under the exploration agreements would be examined later under the umbrella clause (¶¶ 189, 210), whereas no basis for such a claim on the premises of denial of licenses to the Baldjuvon joint venture was found (¶ 196). It further found that the licenses of Petroleum SUGD had been issued, yet this was communicated at a later time to claimant. However, this conduct could not be attributed to respondent (¶ 193) and therefore it had no legal effects to these proceedings. The tribunal interpreted the claimed failure to meet legitimate expectations in the issuance of the licenses according to Thurderbird and Parkerings (¶¶ 201-202). In this case, the tribunal found no basis for any legitimate expectation that licenses would necessarily be issued to the joint venture prior to full payment of the shareholders' capital contributions (¶ 217). Thereafter, it interpreted the standard of due process and/ or denial of justice according to Mondev, Waste Management, Pope & Talbot v. Canada and Tecmed (¶ 221). The tribunal did not consider that the legal issue of a Bahamian company, and not claimant, being party to the allegedly undue process, was able to deprive protection under the ECT, in view of its purpose and scope (¶ 220). Yet, it decided that it was not in a position to make any determination for the Baldjuvon court proceedings due to limited evidence (¶ 227). However, in the Petroleum SUGD court proceedings the tribunal found no violation (¶¶ 231, 232) as the Bahamian company had failed to appear at the national court proceedings without giving any reason for this (¶¶ 229, 230). The tribunal rejected the argument of misapplication of law by the domestic courts, as it did not find the application to be malicious or clearly wrong and refused to sit as an appellate court (¶ 237). The tribunal also dismissed the allegation of breach due to governmental officials meeting with other parties interested in the same oil fields due to insufficient evidence (¶¶ 240-242).
In examining the allegation of breach of standard of full protection and security, the tribunal acknowledged that this was initially developed in the context of physical security. Yet, it did accept a broader application encompassing legal security, but refused that it was a matter of strict liability, in alignment with Tecmed (¶ 246). On the facts brought before it, the tribunal rejected this allegation (¶ 247).
Then, it took the view that the standard of unfair and inequitable treatment and the one of unreasonable and discriminatory measures frequently overlap (¶ 248). It refrained from accepting breach of the latter standard due to insufficient evidence, whereas it addressed specific issues under the umbrella clause (¶¶ 250-253).
Insufficient evidence also led the tribunal to dismiss the claims of treatment less favorable under Art. 10(1) of the ECT (¶ 255) and the national treatment standard under Art. 10(7) of the ECT (¶¶ 273, 275-277).
Thereafter, the tribunal addressed the umbrella clause (Art. 10(1) of the ECT). It specified that it includes both statutory and contractual obligations, as long as they have been entered into with an investor or an investment of an investor. In any event, it does not include general obligations of the state arising as a matter of law (¶ 257). Claimant's assertions in the present proceedings for the support of this argument (¶ 258), did not convince the tribunal (¶¶ 262, 269), but for the breach of the December 2000 agreements (¶¶ 263-265).
Finally, the tribunal in examining the alleged indirect expropriation adopted the formulation of the Tecmed award (¶ 279). Thus, it did not deem sufficient a temporary non-fulfilment of the state's contractual obligations, as the case here was (¶ 281). Moreover, the factual surrounding of the joint ventures was purely evidenced (¶¶ 285-286). Hence, the tribunal concluded that a case of expropriation had not been established (¶ 288).
In conclusion, the tribunal found respondent liable for breach of the umbrella clause under Art. 10(1) of the ECT as a result of its failure to ensure the issuance of licenses pursuant to the December 2000 agreements.
B. Final award dated June 8, 2010
Claimant put forward two requests for relief: an order compelling respondent to issue the exclusive licenses; and compensation for damages caused by delay in issuing such (¶ 31). Respondent did not participate in the procedure (¶¶ 14, 17, 19, 21, 25, 34).
The tribunal repeated that the prime difficulty in this case was related to the submitted factual evidence (¶ 37). It further stated that in establishing the precise amount of damages, it followed the standard of not requiring total certainty, if the existence of damages had been established. Still, it could not base damages' assessment on conjecture or speculation. It was paramount to show a persuasive factual basis for the assessment (¶ 39).
The tribunal then addressed the applicable legal principles. It noted that Art. 26(8) of the ECT allows for monetary damages and other forms of remedies, whereas it also considered the ILC Articles, and especially Arts. 29, 31, 34, 35 and 36, and awards and decisions of other tribunals (¶¶ 41-44). Regarding specific performance, it noted that this constitutes a permissible remedy both in international law (¶ 47) and under the ECT (¶ 48). Any possible problems in enforcement do not make specific performance an impermissible remedy, as also ruled in Micula (¶ 50) , although, a tribunal has to consider, whether such a remedy could be materially possible (¶ 51). After taking into account the ILC Articles (¶ 52) and LETCO, the tribunal considered that nine years had passed since claimant had left Tajikistan and that third parties had become active in the same areas (¶¶ 55, 56, 59). The claim of specific performance was thus denied as these facts could render its implementation materially impossible (¶ 63). Then, in considering the claim for compensatory damages, the tribunal confirmed Art. 36(1) of the ILC Articles as a standard for assessing compensation (¶ 65), while noting the silence of the ECT (¶ 65). The tribunal considered claimant's claim for compensation for the difference in the value that the licenses had in 2001 and the value in 2009, had there been no breach (¶ 66), and the suggested methodology of Discounted Cash Flow Method (¶¶ 68-69). Importantly, neither oil nor gas was produced or found by claimant in any of the four areas (¶¶ 73, 76). In view of the evidence submitted, the tribunal was not able to establish that claimant had acquired sufficient third-party funding for the exploration in same areas, had the licenses been granted (¶ 83). Turning to the geological probability of success, in three of the four areas, it was far from likely that any hydrocarbon reserves would have been found, according to claimant's expert (¶ 88). In addition, those hydrocarbons were unlikely to be economically exploitable (¶ 90). Finally, claimant's lack of positive experience with selling hydrocarbons, did not help the tribunal to project the future profitable operation and exploitation of any gas and oil reserves with any reasonable degree of certainty (¶ 94). In view of the too many unsubstantiated assumptions to justify the suggested method (¶ 96) and the lack of an alternative valuation of damages (¶ 97), the tribunal concluded that it had no substantiated basis for making an assessment of damages (¶ 98). Thus, it awarded no compensation (¶¶ 99, 101, 103).
This dispute concerned the non-issuance and late issuance of licenses, the reduction of capital in a joint venture and the liquidation of another. This case is distinct for two features. Firstly, respondent did not appear at the proceedings. Secondly, the factual evidence provided by claimant was limited and circumstantial. Thus, the tribunal had a fragmentary picture of the dispute. While examining its jurisdiction, it decided that the applicability of the ECT was not affected by the fact that investor indirectly controlled his investment through an intermediary company in a non-ECT state. It then found no breach of the fair and equitable treaty standard, as no basis for legitimate expectations existed. It further took the view that no denial of justice took place. Domestic courts had not misapplied the law, as the application was neither malicious nor clearly wrong. It dismissed the claims of treatment less favorable and national treatment due to insufficient evidence. Lack of evidence equally led the tribunal to dismiss the expropriation claim. Still, the tribunal decided on the basis of the umbrella clause that the December 2000 agreements had been breached. It did not order specific performance, as claimant had left Tajikistan nine years ago and third parties had become active in the same areas. Similarly, the tribunal awarded no compensation, since the method suggested for making an assessment of damages had too many unsubstantiated assumptions and no alternative valuation was suggested.
This summary comes from the following paper:
The paper is part of the joint OGEL/TDM/ArbitralWomen Special Issue:
TDM 7 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes